Monday, March 15, 2010

Seabridge Gold: How To Buy Gold For Under $15 Per Ounce!

As Gold and Silver prepare to launch their imminent maniacal climbs, we've decided to point the spotlight at a few companies of substantial merit for those who don't want to go through the Exchange Traded Fund (ETF) route.

Today's nugget is Seabridge Gold (SA), a company with a vastly different business model than your typical precious metals miner.  The main reason is that Seabridge has no interest in becoming a miner!

Instead, Seabridge Gold  is designed to provide its shareholders with exceptional leverage to a rising gold price through the acquisition and development of existing projects.  From 1999 through 2002, when the gold price was lower, Seabridge acquired nine North American projects with substantial gold resources, including the multi-million ounce Courageous Lake and Kerr-Sulphurets-Mitchell (KSM) deposits. Subsequent exploration by Seabridge has significantly expanded its acquired gold resource base.

Seabridge measures its performance by increasing its gold resources per common share.  Project acquisitions and exploration programs are carefully chosen to ensure that equity dilution required to fund these activities is more than offset by additional ounces of gold resources.

Seabridge pursues several value-enhancing strategies.  First, the Company continues to search for gold projects in North America, which would be accretive in terms of gold ownership and are subject to little geo-political risk.  In addition, Seabridge funds exploration on projects considered likely to expand gold ownership. Finally, Seabridge enters into partnerships to advance its projects toward production, while limiting risk and share dilution.

Seabridge is currently moving ahead with key programs to enhance the value of its KSM project, which is one of the five largest undeveloped gold projects in the world.  Measured and indicated resources now total 38.9 million ounces of gold and 10.0 billion pounds of copper.

While meticulously avoiding major shareholder dilution, the Company completed an equity offering in early March to shore up its balance sheet.  Pursuant to the offering, the Company issued 2,875,000 common shares at a price of $22.90 per share, for aggregate gross proceeds of approximately $65.8 million.

Since the company is primarily in the business of holding mineral deposits, it is not informative to look at earnings.  Instead, Seabridge is an asset play.  While the KSM project holds 38.9 million ounces of Gold, along with substantial Copper resources, the entire company has 64 million ounces.

Fully diluted, the number of shares outstanding following the recent offering is 42.2 million shares.  So, let's do the math:  64 million ounces divided by 42.2 million shares gives Seabridge 1.5 ounces of Gold per share!

SA closed at $21.75 per share on Friday, which, when divided by 1.5 ounces of Gold per share, implies a per ounce valuation of less than $15!  Naturally, one has to consider all the cost of removing the Gold, but even then a recent research report by Seabridge's underwriter, Dahlman Rose, places the Company's valuation well in excess of $100 per share AT CURRENT GOLD PRICES!  What might Seabridge be worth at a $2,000 Gold price?  We'll soon find out!

Disclosure:  I both own some shares of SA and on behalf of others.  The reasons why ought to be obvious.

Marko's Take

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  1. today look interesting. The end of the day push in the last 7 minutes seems to be short covering. Do you think it was?

  2. Anon:

    Hard to say....but the company appears to be still digesting the equity offering.



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